Attorney Matthew Kluger was sentenced to a 12-year prison term that is the longest ever imposed for insider-trading, exceeding the 11-year sentence given Galleon Group LLC co-founder Raj Rajaratnam last year.
In pleading guilty last December, Kluger admitted stealing data on about 30 transactions when he was at four law firms, including Skadden, Arps, Slate, Meagher & Flom LLP and Wilson, Sonsini, Goodrich & Rosati PC. The companies included Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. (ACXM) When deals went public, Bauer sold shares and paid his partners in cash from ATMs. The men used disposable mobile phones to escape detection.
Garrett Bauer, a trader who was sentenced yesterday to nine years in prison, participated in a scheme with Kluger that prosecutors said generated $37 million in illegal profit.
Kluger, 51, stole corporate merger tips from four law firms over 17 years and passed them to middleman Kenneth Robinson, who gave them to Bauer, 44.
All three men pleaded guilty last year in federal court in Newark, New Jersey, where U.S. District Katharine Hayden yesterday said she wanted to send a strong message about the “radiating effect of the loss of confidence in the market” caused by insider trading. She said Kluger stole tips from “white shoe firms” in a “brazen” scheme that was conducted in a “thuggish” manner.
“This particular scheme is tremendously clear,” Hayden said. “People stay out of the stock market, in part, because they think it’s skewed toward the insiders. This case has given insight to the lack of credibility for the small investor.”
Lawyers for both Kluger and Bauer, a day trader, said they would appeal their sentences. Robinson, 46, who cooperated with authorities and secretly taped the other men for the Federal Bureau of Investigation, is scheduled to be sentenced today. Prosecutors praised the terms imposed first on Kluger, and then on Bauer.
Rajaratnam was the most prominent of 66 people charged in an insider-trading crackdown by Manhattan U.S. Attorney Preet Bharara. All but seven pleaded guilty or were convicted at trial since 2009. Most got far less severe terms than Rajaratnam.
Alan Zegas, Kluger’s attorney, argued that his client deserved far less time because he made less than $1 million. Outside of court, Zegas said he would appeal, saying the term was “far harsher than what I believed Mr. Kluger deserved.”
Both Kluger and Bauer pleaded guilty to securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and obstruction of justice. They might have faced as many as 20 years in prison on all but the conspiracy to commit securities fraud count, which carried a five-year term.
Hayden said she judged Kluger more harshly because he abused his position of trust as a lawyer.
The case is U.S. v. Bauer, 11-cr-858, U.S. District Court, District of New Jersey (Newark).
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Jenner & Block Hire Blagojevich Prosecutor Reid Schar
Assistant U.S. Attorney Reid Schar, who prosecuted former Governor Rod Blagojevich, has joined Jenner & Block LLP’s Chicago Office as partner in the white-collar criminal defense and investigations practice group.
Schar, who spent 13 years in the U.S. Attorney’s office, tried more than 20 criminal cases, most involving complex fraud and financing issues. He has led a number of grand jury investigations into complex corruption and financial matters and has briefed and argued 10 appeals in the 7th U.S. Circuit Court of Appeals, the firm said.
“I’m looking forward to working the other side,” Schar said in an interview. “Complex securities cases, intellectual property work, certain types of class action work -- there are different types of challenges in private practice.”
During Schar’s tenure at the U.S. Attorney’s office, he led the prosecution in both corruption trials of Blagojevich and was a member of the team that helped convict former Blagojevich fundraiser Tony Rezko. He was also a part of the prosecution team in the trial of Muhammad Salah and Abdelhaleem Ashqar, who were accused of aiding Hamas.
Since 2011, Schar served as counsel to U.S. Attorney Patrick Fitzgerald, where he provided input on management, personnel, cases, among other matters. He also served as deputy chief of the General Crimes Section and deputy chief of the Organized Crime and Public Corruption section. Since 2005, Schar had been chief liaison to the Environmental Protection Agency and has served as ethics adviser and professional responsibility officer since 2007.
“Mr. Schar is a broad-based thinker whose accomplishments at the U.S. Attorney’s Office are impressive,” said Jenner & Block Chairman Anton R. Valukas. “His track record and superb advocacy skills are exactly what is required to work on the types of matters our clients look to us to handle.”
Schar says he picked Jenner because of its strong litigation practice. Schar’s practice will focus on complex criminal matters, internal investigations and high-stakes civil litigation. Despite switching sides, he anticipates some similarities in the job. “If you’re a good prosecutor you should be thinking like a good defense attorney,” he said.
Jenner & Block counts several other former U.S. Attorney among its ranks, including two former U.S. Attorneys, Valukas and Thomas P. Sullivan. Schar will be the firm’s 11th partner who formerly served at the U.S. Attorney’s Office, the firm said.
Ex-UBS Prosecutor for U.S. Downing to Join Miller & Chevalier
Downing will join the firm June 11, Miller & Chevalier said yesterday in an e-mailed statement. Downing resigned from the Justice Department effective yesterday, according to a person familiar with the matter who declined to be identified and wasn’t authorized to speak about the resignation.
“The focus of the federal government on criminal tax enforcement is going to continue at an aggressive pace,” Patricia Sweeney, chairwoman of Miller & Chevalier’s tax department, said in the statement. Downing’s “understanding of both civil and criminal enforcement issues unique to international financial institutions will be of great benefit.”
Downing was the lead prosecutor in the U.S. probe of UBS, Switzerland’s largest bank. In February 2009, UBS avoided prosecution by paying $780 million, admitting it helped thousands of Americans evade taxes and turning over the names of 250 American clients to U.S. authorities. UBS later revealed another 4,450 accounts.
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Jones Walker Opens New York Office Headed by Lazio
Former U.S. Representative from New York Rick Lazio is joining the law firm of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, LLP as a partner and will head the firm’s first New York office.
Lazio also will lead the firm’s housing and housing finance team, which will include attorneys from several practice areas including real estate, banking and financial services, business and commercial transactions, tax and government relations. Lazio will focus on issues of affordable housing and related housing finance, as well as financial services. He will also have an office in Jones Walker’s Washington office.
Jones Walker has more than 375 attorneys at offices in Alabama, Arizona, the District of Columbia, Florida, Georgia, Louisiana, Mississippi, New York and Texas.
SEC Litigator Healy Joins Reed Smith in Washington
Reed Smith LLP announced the addition of Terence Healy as a partner in its global regulatory enforcement group in the firm’s Washington office. Healy was formerly Senior Assistant Chief Litigation Counsel at the Securities and Exchange Commission in Washington.
Healy worked on cases related to accounting fraud, revenue recognition, options backdating, insider trading, Foreign Corrupt Practices Act, and structured products. He directed the trial teams in the agency’s insider trading case against Dallas Maverick’s owner Mark Cuban and the SEC’s first litigated case against individuals under the FCPA.
Prior to joining the SEC, Healy spent nine years as a trial attorney for the Department of Justice.
“We are pleased to add another former top-level federal litigator to our ranks,” A. Scott Bolden, managing partner of Reed Smith’s Washington office said in a statement. “Terence’s experience at the SEC and DOJ give him a perspective on global regulatory issues that will be very valuable for a wide range of Reed Smith clients, who look to us for assistance with securities-related issues, FCPA, internal investigations, and complex litigation matters.”
Reed Smith has more than 1,600 lawyers in 23 offices throughout the U.S., Europe, Asia and the Middle East.
Kerviel’s Refusal to Be SocGen Scapegoat Seen Harming Appeal
Jerome Kerviel began his fight yesterday against a 2010 conviction for Societe Generale SA (GLE)’s 4.9 billion-euro ($6.2 billion) trading loss, telling a Paris appeals court that the bank knew about his actions.
His lawyers said they’ll show judges at the four-week appeal starting yesterday that the bank knew before the 2008 trading loss that he was exceeding his mandate with risky bets and can’t claim to be an innocent victim.
“I think that I’m not responsible for this loss,” Kerviel told Judge Mireille Filippini at the start of the hearing yesterday, in response to a question about why he was appealing. “I always acted with the knowledge” of the bank.
Kerviel’s stance is similar to the defense he used with his previous legal team when the court held him responsible, sentenced him to three years in jail and ordered him to repay the loss. Those arguments aren’t likely to impress the appellate judges, said Stephane Bonifassi, a Paris criminal lawyer.
“What courts like to hear, if they think a guy is guilty, is that he understands what he did,” said Bonifassi, who isn’t involved in the matter. “Here, it’s a guy who says, ‘It’s not my fault, it’s other people’s fault.’ He still hasn’t accepted what happened.”
Kerviel’s defenders say he will own up to his actions and the appeal won’t recycle the lower court defense.
Kerviel “is ready to take responsibility for what he did, but he will never accept the blame for what he didn’t do,” said David Koubbi, his lead lawyer. Kerviel “is guilty of nothing” as the case rests on him betraying the trust of the bank.
When asked by Filippini about how the bank monitored his activities, Kerviel said yesterday he and others exceeded their limits “very, very regularly,” and that he would receive e- mails in the morning alerting him when he was beyond the lines.
This may be because the verdict had made him “afraid,” Veil said. Other than the tone, his defense “is exactly the same.”
Koubbi has also filed complaints accusing Societe Generale of trying to obscure information. Paris prosecutors began preliminary inquiries in May into claims the bank misled the lower court by hiding a nearly 1.7 billion-euro tax credit on the loss and gave investigators an audio recording that had been tampered with. An inquiry into the defamation complaints Societe Generale filed in response is also under way.
Kerviel changed legal teams four times since the January 2008 loss, reiterating what he said from the start that he feared being made a “scapegoat” for what he said was a common practice of evading risk controls and exceeding limits.
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Apple Copied Samsung Inventions for IPhone Use, U.S. Judge Told
Apple Inc. (AAPL) introduced its iPhone in 2007 using Samsung Electronics Co. (005930) technology that it didn’t want to pay for, Charles Verhoeven of Quinn Emanuel Urquhart & Sullivan LLP, who was representing the Korean electronics company, told a U.S. trade judge yesterday.
Samsung contends Apple’s devices, including the iPhone, iPad tablet computer and iPod touch media player have infringed as many as four patents. All came from two decades of work Suwon, South Korea-based Samsung spent improving mobile phones, the attorney for the company said.
“All of these things that Samsung built up, Apple was using when it entered the market,” Samsung lawyer Verhoeven said as a trial began yesterday at the U.S. International Trade Commission in Washington. “Apple, in 2007, when they decided to enter an industry they’d never been in before, didn’t even inquire of there was a license they needed to take.”
The case before ITC Judge James Gildea, and another patent case by Apple against Samsung that’s in the midst of trial before a different trade judge, are part of a global battle between the two companies for increased share of a market that Bloomberg Industries said was $312 billion last year.
Apple denies infringing the Samsung patents and is challenging their validity, just as Samsung is doing in regard to Apple’s allegations.
Cupertino, California-based Apple contends Samsung raised the patent issue in 2010 only after being confronted with claims it was introducing new products that copied the iPhone and iPad, Apple lawyer William Lee of Wilmer Cutler Pickering Hale and Dorr LLP said.
Two of the Samsung patents cover industry standards for the transmission of data and two others are for device features.
“In that three- to four-year period, Samsung never suggested the patents were infringed by an Apple product,” Lee said. “For nearly four years, no claims of infringement, and then an infringement problem arose.”
Samsung’s case against Apple is In the Matter of Electronic Devices, Including Wireless Communication Devices, 337-794, and Apple’s case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, both U.S. International Trade Commission (Washington).
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MF Global Trustee Giddens May Bring Corzine Negligence Claims
Hughes Hubbard & Reed LLP’s James Giddens, the trustee liquidating MF Global Holdings (MFGLQ) Ltd.’s brokerage, said in a report that claims for breach of fiduciary duty and negligence can be made against employees of the company including former Chairman Jon Corzine, finance chief Henri Steenkamp and Assistant Treasurer Edith O’Brien.
Giddens declined to make any recommendations on potential criminal liability, saying such determinations were beyond the scope of his mandate. MF Global managers may be liable for some of the $1.6 billion shortfall in customer money, according to the report. Giddens said he will pursue claims through litigation and negotiation, starting to sue within 60 days.
“I have determined there may be valid claims against individuals and entities,” Giddens said in the report. “In my capacity as trustee, I will make every effort to ensure that such claims result in the greatest possible returns to customers in an efficient and fair manner, whether those claims are pursued by my office or others.”
Giddens also said he’s in discussions with JPMorgan Chase & Co. (JPM) regarding money transfers that may be “voidable or otherwise recoverable.” Giddens said JPMorgan has returned about $89.2 million in customer property and $518.4 million in non-segregated unallocated MF Global Inc. assets. He may sue the bank if he can’t strike an agreement about further returns of money, he said.
Mary Sedarat, a JPMorgan spokeswoman, declined to comment on Giddens’s report. Steven Goldberg, a Corzine spokesman, didn’t immediately respond to an e-mail seeking comment on Giddens’s report. Reid Weingarten, a lawyer for O’Brien, declined to comment. O’Brien invoked her constitutional right against self-incrimination at a congressional hearing in March, disappointing lawmakers seeking answers to questions about frantic money transfers during the company’s final days in October.
MF Global Holdings, the brokerage parent run by former Goldman Sachs Group Inc. (GS) Co-Chairman Corzine until his Nov. 4 resignation, filed the eighth-largest U.S. bankruptcy after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to margin calls. Its bankruptcy filing listed assets of $41 billion and debt of $39.7 billion.
The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Conrad Black Sues U.S. Seeking to Void Criminal Convictions
Conrad Black, the former Hollinger International Inc. chairman found guilty of fraud and obstruction of justice, sued the U.S. in a bid to cancel the convictions.
Black, 67, argued yesterday in papers filed in federal court in Chicago, that prosecutors’ seizure of almost $9 million in proceeds from his sale of a Manhattan apartment in 2005 prevented him from hiring the defense counsel of his choice, violating his constitutional rights.
Black’s trial defense team was led by Chicago lawyer Edward Genson and Canadian attorney Edward Greenspan. The former chief executive officer wanted to retain Brendan Sullivan and Gregory Craig of Washington-based Williams & Connolly LLP, according to yesterday’s filing, made by William K. Kane of the Chicago office of Baker & Hostetler LLP.
“It is too late to turn back the clock and to restore the deprivation of Mr. Black’s constitutionally guaranteed right to counsel of choice,” his attorneys said. “However, it is not too late for Mr. Black’s remaining convictions to be vacated.”
Black noted that he was acquitted of the crimes related to the confiscated money.
“The seized funds were returned to him, but the damage was done,” he said.
He is also asking for dismissal of the indictment and official cancellation of the sentence he served, about three years.
Black and four other men were accused of skimming money from the Chicago-based company as it more than $3 billion in assets from 1998 to 2001. One of them, ex-finance chief F. David Radler, pleaded guilty to fraud and testified against the others.
Black successfully appealed two of three fraud charges for which he was found guilty, winning a reduction of his original 6 1/2-year sentence. He was freed from a U.S. prison in Miami last month and flown to Toronto where he now lives.
Randall Samborn, a spokesman for U.S. Attorney Patrick Fitzgerald in Chicago, declined to comment on Black’s request. The prosecutor announced May 23 that he will step down June 30.
The criminal case is U.S. v. Black, 1:05-cr-00727, and yesterday’s lawsuit is Black v. U.S., 12-cv-4306, U.S. District Court, Northern District of Illinois (Chicago).
Juror Lies Result in New Trial for Three in Tax-Fraud Case
Paul Daugerdas, a former Jenkens & Gilchrist lawyer, and two other defendants in what a judge called the biggest U.S. tax-fraud prosecution in history won a new trial after a juror disclosed she hid details of her past, including that she was an alcoholic and a suspended attorney.
U.S. District Judge William Pauley in Manhattan yesterday overturned the convictions, ruling that the presence of Catherine Conrad, who was Juror No. 1, denied the three a fair trial.
“While Conrad claimed that she was a ‘fair and unbiased’ juror, this court cannot credit that assertion,” Pauley said in an opinion yesterday. “Conrad is a pathological liar and utterly untrustworthy.”
Pauley upheld the conviction of a fourth defendant, former accountant David Parse, ruling that his lawyers possessed information about Conrad’s lying that they failed to tell the court before the case went to the jury.
Jurors in May 2011 convicted Daugerdas of more than 20 criminal counts stemming from an alleged 10-year tax shelter scheme. He faced more than 20 years in prison. The defendants claimed Conrad wouldn’t have been permitted to serve on the jury if she had told the truth about her background. Her presence on the panel deprived them of a fair trial, they said.
The case is U.S. v. Daugerdas, 09-CR-581, U.S. District Court, Southern District of New York (Manhattan).
Dewey’s U.K. Unit Had $175 Million of Liabilities, FT Reports
The U.K. unit of Dewey & LeBoeuf LLP, the U.S. law firm that’s in bankruptcy proceedings, has liabilities of at least $175 million, the Financial Times said, citing the company’s last London partner, Mark Fennessy.
The U.K. unit was profitable and acted as guarantor to secure the bank and bondholder debt of the U.S. firm, Fennessy told the FT on May 29, the newspaper reported June 2. Fennessy until May 28 was coordinating the winding down of Dewey’s U.K. and French operations, the newspaper said.
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